Corporate corruption and future audit fees: Evidence from a quasi-natural experiment

Abstract

Using a difference-in-differences estimation that relies on China's anti-corruption campaign as a regulatory shock, we report that an exogenous reduction in firm-level corruption leads to lower future audit fees. Further triple difference analyses reveal that the decrease in future audit fees is more significant for firms operating in regions with weak legal environments, strong government control, and weak property rights protection. Government subsidies and related party transactions are channels through which the anti-corruption campaign affects future audit fees. Compared to previous literature, we conclude the effect of corruption on future audit fees is causal.